Spillovers of investment in PPPs onto Portuguese public and private investment and GDP

This paper presents results of time series techniques assessing the macroeconomic impact of investment in public-private partnerships (PPPs) on public and private investment in Portugal, using data for the period 1998-2013. The approach used allows the computation of crowding-in/crowding-out effects of investment from PPPs, that is, whether investment in PPPs provides favorable spillovers for the undertaking of private and public investment or otherwise is detrimental to its development. This area of research is particularly topical because this way of financing investment witnessed a surge in Portugal in the early 2000’s. In fact, data for the period 1990-2000 position Portugal in the first place in the EU countries ranking in terms of investment in PPPs as a percentage of GDP. Results show that public and private investment has a positive effect in GDP while investment in PPP reduces Portuguese GDP. Further, the results that point to the existence of crowding-out in private and public investment in consequence of PPP investment, together with insufficient PPPs macro-economic rates of return are evidence that investment in PPP in Portugal, which involved almost exclusively the construction and operation of road infrastructures, is not the most efficient method of financing this kind of investment and/or have facilitated the expansion of road infrastructures beyond the social optimum. In fact, the investment through PPPs does not appear to be the kind of investment leading to the higher productivity the Portuguese economy needs for a sustained increase in its export capacity and to allow for the correction of accumulated external imbalances. Empirical results do also support the idea that this kind of investment undermined private agents and public sector capacity to carry on their investment activities.

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